Companies such as Pepperfry, Myntra, and FirstCry are investing heavily in setting up physical stores to fuel their next phase of growth.

Myntra, the market leader in online fashion, has established several physical stores to sell its own brands as well as partner brands such as the Barcelona-based Mango.

MUMBAI | BENGALURU: For the country’s top online furniture and fashion retailers, offline is the mantra for next year as several of them look to become IPO ready in 2-3 years.

Companies such as furniture seller Pepperfry, fashion store Myntra, and baby products retailer FirstCry are investing heavily in setting up physical stores to fuel their next phase of growth. Category leaders in niche ecommerce have been steadily building robust offline sales channels in the past 18 months to onboard more customers and, according to several of them, the hybrid strategy is beginning to bear fruit.

“Having a business with a large customer franchise will get you to IPO and make you IPO-ready. The larger we are as a business, the more profitable we grow, the more successful our IPO,” said Pepperfry chief executive Ambareesh Murty, who is targeting profitability in 12-18 months and a public market show post that.

Pepperfry’s 23 physical stores contribute 20% to its overall sales and have helped pare losses significantly. Competitor Urban Ladder, which is attempting to get IPO-ready in 3 years, too is expanding its offline format. The multi-channel wave has spread to high-frequency categories such as fashion, baby wear and lingerie.

Flipkart-owned Myntra, the market leader in online fashion, has established several physical stores to sell its own brands as well as partner brands such as the Barcelona-based Mango.

FirstCry, which is in talks with Temasek and other investors to raise about $100 million, is looking to expand its boutique popup stores that contribute more than 30% to its revenue.

Balancing high cost of customer acquisition For eyewear firm Lenskart, a pioneer of the hybrid strategy, its 400 offline stores contribute 50-60% of its business while also doubling up as a branding tool. “While in the short term, offline contributes more (stability), in the long term, it is the mixed strategy that works,” said Lenskart CEO Peyush Bansal.

Offline stores help balance the high cost of customer acquisition that online stores demand, he said. As per industry estimates, India’s online retail market grew at about 25% in 2017 and is pegged at $17-20 billion. It is estimated to grow at 30-35% over the next 4-5 years.

Market experts concur that leading niche ecommerce retailers, given their leadership within a limited market, are likely to reach profitability faster than large multi-category marketplaces.

But they warned that aggressive expansion of offline sales models must be viewed with caution as valuation challenges tend to creep in at the time of an IPO.

“The online effect that plays out in ecommerce should not get significantly diluted by the offline economic model. Does the offline strategy significantly increase your growth because it has greater potential or is it to supplement (your online sales)? Therein lies the key difference,” said V Jayasankar, head-equity capital markets, Kotak Investment Banking.

“If there are limitations to the online business model and it requires to be supplemented significantly by offline (channels), then the business will get valued differently.”

The difference is the valuation parameters of a pure tech business versus that of a retail business with tech presence.

Some analysts, however, doubt the viability and sustainability of the hybrid model, insisting that the offline sales strategy has limited impact on profitability and given its high costs may not significantly aid the road to an IPO anytime soon.

“As of now, it seems like (niche online retailers) are trying to change the story to crack the next round of funding since online growth is not scaling up,” said Satish Meena, senior analyst at Forrester Research. “So the idea is to show that they are gaining growth by launching offline stores. It’s almost a preparation for the next round of funding.”